QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2017

or

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File No.

Exact Name of Registrants as Specified in their Charters, Address and Telephone Number

States of Incorporation

I.R.S. Employer Identification Nos.

Former name, former address and former fiscal year, if changed since last report

1-14201

SEMPRA ENERGY

California

33-0732627

No change

488 8
th
Avenue

San Diego, California 92101

(619) 696-2000

1-03779

SAN DIEGO GAS & ELECTRIC COMPANY

California

95-1184800

No change

8326 Century Park Court

San Diego, California 92123

(619) 696-2000

1-01402

SOUTHERN CALIFORNIA GAS COMPANY

California

95-1240705

No change

555 West Fifth Street

Los Angeles, California 90013

(213) 244-1200

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Yes

X

No

1

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Sempra Energy

Yes

X

No

San Diego Gas & Electric Company

Yes

X

No

Southern California Gas Company

Yes

X

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large

accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Sempra Energy

[ X ]

[ ]

[ ]

[ ]

[ ]

San Diego Gas & Electric Company

[ ]

[ ]

[ X ]

[ ]

[ ]

Southern California Gas Company

[ ]

[ ]

[ X ]

[ ]

[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Sempra Energy

Yes

No

San Diego Gas & Electric Company

Yes

No

Southern California Gas Company

Yes

No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sempra Energy

Yes

No

X

San Diego Gas & Electric Company

Yes

No

X

Southern California Gas Company

Yes

No

X

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.

Common stock outstanding on July 28, 2017:

Sempra Energy

251,077,626 shares

San Diego Gas & Electric Company

Wholly owned by Enova Corporation, which is wholly owned by Sempra Energy

Southern California Gas Company

Wholly owned by Pacific Enterprises, which is wholly owned by Sempra Energy

This combined Form 10-Q is separately filed by Sempra Energy, San Diego Gas & Electric Company and Southern California Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

You should read this report in its entirety as it pertains to each respective reporting company. No one section of the report deals with all aspects of the subject matter. Separate Part I – Item 1 sections are provided for each reporting company, except for the Notes to Condensed Consolidated Financial Statements. The Notes to Condensed Consolidated Financial Statements for all of the reporting companies are combined. All Items other than Part I – Item 1 are combined for the reporting companies.

3

The following terms and abbreviations appearing in the text of this report have the meanings indicated below.

We make statements in this report that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon assumptions with respect to the future, involve risks and uncertainties, and are not guarantees of performance. These forward-looking statements represent our estimates and assumptions only as of the filing date of this report. We assume no obligation to update or revise any forward-looking statement as a result of new information, future events or other factors
.

Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include

▪

actions and the timing of actions, including decisions, new regulations, and issuances of permits and other authorizations by the CPUC, DOE, DOGGR, FERC, EPA, PHMSA, DPH, states, cities and counties, and other regulatory and governmental bodies in the United States and other countries in which we operate
;

▪

the timing and success of business development efforts and construction projects, including risks in obtaining or maintaining permits and other authorizations on a timely basis, risks in completing construction projects on schedule and on budget, and risks in obtaining the consent and participation of partners
;

▪

the resolution of civil and criminal litigation and regulatory investigation
s;

▪

deviations from regulatory precedent or practice that result in a reallocation of benefits or burdens among shareholders and ratepayers; modifications of settlements; and delays in, or disallowance or denial of, regulatory agency authorizations to recover costs in rates from customers (including with respect to regulatory assets associated with the SONGS facility and 2007 wildfires) or regulatory agency approval for projects required to enhance safety and reliability
;

▪

the availability of electric power, natural gas and liquefied natural gas, and natural gas pipeline and storage capacity, including disruptions caused by failures in the transmission grid, moratoriums or limitations on the withdrawal or injection of natural gas from or into storage facilities, and equipment failures
;

▪

changes in energy markets; volatility in commodity prices; moves to reduce or eliminate reliance on natural gas; and the impact on the value of our investment in natural gas storage and related assets from low natural gas prices, low volatility of natural gas prices and the inability to procure favorable long-term contracts for storage services
;

▪

risks posed by actions of third parties who control the operations of our investments, and risks that our partners or counterparties will be unable or unwilling to fulfill their contractual commitments
;

▪

weather conditions, natural disasters, accidents, equipment failures, computer system outages, explosions, terrorist attacks and other events that disrupt our operations, damage our facilities and systems, cause the release of greenhouse gases, radioactive materials and harmful emissions, cause wildfires and subject us to third-party liability for property damage or personal injuries, fines and penalties, some of which may not be covered by insurance (including costs in excess of applicable policy limits) or may be disputed by insurers
;

▪

cybersecurity threats to the energy grid, storage and pipeline infrastructure, the information and systems used to operate our businesses and the confidentiality of our proprietary information and the personal information of our customers and employees
;

▪

capital markets and economic conditions, including the availability of credit and the liquidity of our investments; and fluctuations in inflation, interest and currency exchange rate
s and our ability to effectively hedge the risk of such fluctuations;

▪

changes in the tax code as a result of potential federal tax reform, such as the elimination of the deduction for interest and non-deductibility of all, or a portion of, the cost of imported materials, equipment and commodities;

▪

changes in foreign and domestic trade policies and laws, including border tariffs, revisions to favorable international trade agreements, and changes that make our exports less competitive or otherwise restrict our ability to export;

▪

the ability to win competitively bid infrastructure projects against a number of strong and aggressive competitors
;

▪

expropriation of assets by foreign governments and title and other property disputes
;

▪

the impact on reliability of SDG&E’s electric transmission and distribution system due to increased amount and variability of power supply from renewable energy sources
;

▪

the impact on competitive customer rates due to the growth in distributed and local power generation and the corresponding decrease in demand for power delivered through SDG&E’s electric transmission and distribution system and from possible

6

departing retail load resulting from customers transferring to Direct Access and Community Choice Aggregation or other forms of distributed and local power generation and the potential risk of nonrecovery for stranded assets and contractual obligations; and

▪

other uncertainties, some of which may be difficult to predict and are beyond our control.

We caution you not to rely unduly on any forward-looking statements. You should review and consider carefully the risks, uncertainties and other factors that affect our business as described herein and in our most recent Annual Report and other reports that we file with the SEC.

7

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SEMPRA ENERGY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

Three months ended June 30,

Six months ended June 30,

2017

2016(1)

2017

2016(1)

(unaudited)

REVENUES

Utilities

$

2,197

$

1,994

$

4,895

$

4,436

Energy-related businesses

336

162

669

342

Total revenues

2,533

2,156

5,564

4,778

EXPENSES AND OTHER INCOME

Utilities:

Cost of electric fuel and purchased power

(553

)

(561

)

(1,080

)

(1,076

)

Cost of natural gas

(228

)

(183

)

(713

)

(494

)

Energy-related businesses:

Cost of natural gas, electric fuel and purchased power

(62

)

(62

)

(129

)

(118

)

Other cost of sales

38

(226

)

16

(261

)

Operation and maintenance

(731

)

(706

)

(1,445

)

(1,406

)

Depreciation and amortization

(368

)

(314

)

(728

)

(642

)

Franchise fees and other taxes

(101

)

(96

)

(211

)

(207

)

Impairment losses

(71

)

(21

)

(71

)

(22

)

Equity earnings (losses), before income tax

18

14

21

(8

)

Other income, net

91

23

260

72

Interest income

8

6

14

12

Interest expense

(159

)

(142

)

(328

)

(285

)

Income (loss) before income taxes and equity earnings (losses)

of certain unconsolidated subsidiaries

415

(112

)

1,170

343

Income tax (expense) benefit

(167

)

106

(462

)

(2

)

Equity earnings (losses), net of income tax

—

33

(8

)

50

Net income

248

27

700

391

Losses (earnings) attributable to noncontrolling interests

12

(10

)

1

(21

)

Preferred dividends of subsidiary

(1

)

(1

)

(1

)

(1

)

Earnings

$

259

$

16

$

700

$

369

Basic earnings per common share

$

1.03

$

0.06

$

2.79

$

1.48

Weighted-average number of shares outstanding, basic (thousands)

251,447

250,096

251,290

249,915

Diluted earnings per common share

$

1.03

$

0.06

$

2.77

$

1.47

Weighted-average number of shares outstanding, diluted (thousands)

252,822

252,036

252,609

251,775

Dividends declared per share of common stock

$

0.83

$

0.75

$

1.65

$

1.51

(1)

As adjusted for the adoption of ASU 2016-09 as of January 1, 2016.

See Notes to Condensed Consolidated Financial Statements.

8

SEMPRA ENERGY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

Sempra Energy shareholders’ equity

Pretax
amount

Income tax
(expense) benefit

Net-of-tax
amount

Noncontrolling
interests

(after-tax)

Total

Three months ended June 30, 2017 and 2016

(unaudited)

2017:

Net income (loss)

$

427

$

(167

)

$

260

$

(12

)

$

248

Other comprehensive income (loss):

Foreign currency translation adjustments

3

—

3

2

5

Financial instruments

(43

)

17

(26

)

(4

)

(30

)

Pension and other postretirement benefits

2

(1

)

1

—

1

Total other comprehensive loss

(38

)

16

(22

)

(2

)

(24

)

Comprehensive income (loss)

389

(151

)

238

(14

)

224

Preferred dividends of subsidiary

(1

)

—

(1

)

—

(1

)

Comprehensive income (loss), after preferred

dividends of subsidiary

$

388

$

(151

)

$

237

$

(14

)

$

223

2016:

Net (loss) income

$

(89

)

$

106

$

17

$

10

$

27

Other comprehensive income (loss):

Foreign currency translation adjustments

11

—

11

—

11

Financial instruments

(78

)

35

(43

)

1

(42

)

Pension and other postretirement benefits

2

(1

)

1

—

1

Total other comprehensive (loss) income

(65

)

34

(31

)

1

(30

)

Comprehensive (loss) income

(154

)

140

(14

)

11

(3

)

Preferred dividends of subsidiary

(1

)

—

(1

)

—

(1

)

Comprehensive (loss) income, after preferred

dividends of subsidiary

$

(155

)

$

140

$

(15

)

$

11

$

(4

)

Six months ended June 30, 2017 and 2016

(unaudited)

2017:

Net income (loss)

$

1,163

$

(462

)

$

701

$

(1

)

$

700

Other comprehensive income (loss):

Foreign currency translation adjustments

49

—

49

11

60

Financial instruments

(36

)

14

(22

)

(2

)

(24

)

Pension and other postretirement benefits

5

(2

)

3

—

3

Total other comprehensive income

18

12

30

9

39

Comprehensive income

1,181

(450

)

731

8

739

Preferred dividends of subsidiary

(1

)

—

(1

)

—

(1

)

Comprehensive income, after preferred

dividends of subsidiary

$

1,180

$

(450

)

$

730

$

8

$

738

2016(1):

Net income

$

372

$

(2

)

$

370

$

21

$

391

Other comprehensive income (loss):

Foreign currency translation adjustments

79

—

79

5

84

Financial instruments

(237

)

110

(127

)

(4

)

(131

)

Pension and other postretirement benefits

4

(2

)

2

—

2

Total other comprehensive (loss) income

(154

)

108

(46

)

1

(45

)

Comprehensive income

218

106

324

22

346

Preferred dividends of subsidiary

(1

)

—

(1

)

—

(1

)

Comprehensive income, after preferred

dividends of subsidiary

$

217

$

106

$

323

$

22

$

345

(1)

As adjusted for the adoption of ASU 2016-09 as of January 1, 2016.

See Notes to Condensed Consolidated Financial Statements.

9

SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

June 30,
2017

December 31,
2016(1)

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

$

223

$

349

Restricted cash

70

66

Accounts receivable – trade, net

1,139

1,390

Accounts receivable – other, net

165

164

Due from unconsolidated affiliates

26

26

Income taxes receivable

110

43

Inventories

239

258

Regulatory balancing accounts – undercollected

261

259

Fixed-price contracts and other derivatives

186

83

Assets held for sale

109

201

Other

239

271

Total current assets

2,767

3,110

Other assets:

Restricted cash

17

10

Due from unconsolidated affiliates

373

201

Regulatory assets

3,569

3,414

Nuclear decommissioning trusts

1,029

1,026

Investments

2,134

2,097

Goodwill

2,379

2,364

Other intangible assets

541

548

Dedicated assets in support of certain benefit plans

427

430

Insurance receivable for Aliso Canyon costs

554

606

Deferred income taxes

166

234

Sundry

859

815

Total other assets

12,048

11,745

Property, plant and equipment:

Property, plant and equipment

45,704

43,624

Less accumulated depreciation and amortization

(11,143

)

(10,693

)

Property, plant and equipment, net ($335 and $354 at June 30, 2017 and

December 31, 2016, respectively, related to VIE)

34,561

32,931

Total assets

$

49,376

$

47,786

(1)

Derived from audited financial statements.

See Notes to Condensed Consolidated Financial Statements.

10

SEMPRA ENERGY

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(Dollars in millions)

June 30,
2017

December 31,
2016(1)

(unaudited)

LIABILITIES AND EQUITY

Current liabilities:

Short-term debt

$

1,826

$

1,779

Accounts payable – trade

1,054

1,346

Accounts payable – other

113

130

Due to unconsolidated affiliates

11

11

Dividends and interest payable

339

319

Accrued compensation and benefits

314

409

Regulatory balancing accounts – overcollected

204

122

Current portion of long-term debt

1,287

913

Fixed-price contracts and other derivatives

109

83

Customer deposits

158

158

Reserve for Aliso Canyon costs

63

53

Liabilities held for sale

47

47

Other

538

557

Total current liabilities

6,063

5,927

Long-term debt ($289 and $293 at June 30, 2017 and December 31, 2016, respectively,